The distribution of income and wealth

Question 1

What is wealth?

Answer 1

A stock of valuable assets

Question 2

What is marketable wealth? Example?

Answer 2

Wealth that can be transferred to others

e.g. property

Question 3

What is non-marketable wealth? Example?

Answer 3

Wealth specific to a person, which cannot be transferred

e.g. life insurance

Question 4

What is the distribution of wealth?

Answer 4

How wealth is shared out between the population

Question 5

What are the sources of wealth? (4) (ICES)

Answer 5

Inheritance
Chance
Entrepreneurship
Saving

Question 6

What are the causes of wealth inequality? (4) (MICI)

Answer 6

Marriage
Inheritance
Chance
Income inequality

Question 7

What is income?

Answer 7

A flow of money to a factor of production

Question 8

What is the distribution of income?

Answer 8

How income is shared out between the factors of production

Question 9

What is the Lorenz curve?

Answer 9

A diagrammatic representation of the distribution of income and wealth

Question 10

What is the Gini coefficient?

Answer 10

A statistical measure of the degree of inequality of income or wealth

Question 11

If the Gini coefficient is closer to 1, what can be concluded?

Answer 11

It is more unequal

Question 12

What are the causes of income inequality between households? (3)

Answer 12

Wealth inequality
Level of skills and qualifications
Differences in earnings

Question 13

What are the methods a government intervention to make the distribution of income/wealth more equal? (4) (TMDL)

Answer 13

Taxation
Monetary benefits
Direct provision of goods and services
Legislation

Question 14

How does taxation improve the distribution of income/wealth?

Answer 14

Progressive tax, higher the income, the more tax you pay

Question 15

How does monetary benefits improve the distribution of income/wealth?

Answer 15

Gives families with lower income extra supports

Question 16

How does direct provision of goods and services improve the distribution of income/wealth?

Answer 16

e.g. education

Free at the point of consumption

Question 17

How does legislation improve the distribution of income/wealth?

Answer 17

e.g. national minimum wage

Question 18

What is absolute poverty?

Answer 18

When an individuals or household income is insufficient for them to afford basic shelter, food and clothing

Question 19

What is relative poverty?

Answer 19

When people are poor in comparison to others

Question 20

What are the causes of poverty? (6) (ULSOPI)

Answer 20

Unemployment 
Low wages 
Sickness and disability 
Old age
Poverty trap
Imperfect information

Question 21

What is the poverty trap?

Answer 21

When individuals ore households are no better off following a pay increase because tax paid increases and benefits are withdrawn

Question 22

What are the methods a government use to address the problem of poverty? (3)

Answer 22

National minimum wage
Reducing unemployment
Training and education

Question 23

What is voluntary unemployment?

Answer 23

When a worker chooses not to accept a job at the going wage rate

Question 24

What is the national minimum wage?

Answer 24

A statutory minimum wage introduced to boost the earnings of the low paid

Question 25

Where must the national minimum wage be set?

Answer 25

Above the market equilibrium wage

Question 26

What is the risk of a national minimum wage?

Answer 26

May result in government failure due to the rise in unemployment